Diversifying your portfolio to include passive income is one of the most effective ways to make additional income in today’s market. A vacation home can be rented out to generate a profit quickly after you have made significant investment. But many of us don’t benefit from the luxury of secondary residences, so the best alternative to get into this field and start generating profit is by turning to holiday let mortgages. What are they and how can they work for you?
The holiday mortgage, which is an exclusive type of mortgage, covers the purchase costs for real estate properties. They can also be used to rent out property that you own and earn passive income. This can help you diversify your income, particularly if you are looking to purchase a property that will be used by many tourists. As long as the property is maintained properly, it can also work well.
Is Holiday Letting Mortgages The Same As Buy-to-Let mortgages?
But not quite. Although these types of mortgages are in the same group as those for buy-to-let, there is a key distinction in the method your income will come from. The majority of holiday properties are seasonal investments that only produce passive income in peak tourist seasons. Let’s say you would like to buy a holiday home in a popular mountain area for ski enthusiasts. This holiday home can bring you nice profits in winter when tourists are high. But, it is less likely that the property will generate a large profit in summer months because of its higher maintenance cost.
If you are looking to buy a property at a beach resort, and rent it out as a rental income, the same rules apply. In the summer months where the beaches are crowded, the property will make a substantial profit, however, potential tourists won’t be able to cover the cost of maintenance. This lack of a steady income makes these types of mortgages a higher risk for lenders, so the costs associated with holiday let mortgages are generally higher, with most lenders requiring a minimum 25% deposit for such mortgages and a baseline income of at least £20,000 without including here any profits made by rentals.
How do I get a mortgage?
There are many factors that can impact the chances of getting a holiday mortgage. There are two main criteria to be approved for a holiday let mortgage. The income and property count of an applicant. However, you may also have the chance of getting approved if your professional analysis shows how rents could bring in future profits. You should note that this type of loan presents higher risks to lenders and has a lower interest rate than regular mortgages. In most cases you will need to contact a third party firm for a professional analysis of expected income following the purchase of the property.
Can This be a profitable financial investment?
Your expectations, and your ability to manage the financial aspects of rental properties will play a major role in this decision. More than 65 percent of UK homeowners are home-owners, but only 870,000 UK households own a second residence. There is potential to make a profit on an investment, however you should also consider the extra costs associated with a property which will only produce income for a few months each year.
It is important to take into account the cleaning and maintenance costs for a rental property, as well as the cost of insurance. These costs are usually higher than those of regular households. Your work schedule, or location may make it unaffordable for you and your family to meet each tenant. You might also need to hire specialized staff to maintain the property professionally. It is possible for costs to escalate rapidly so be ready for any unexpected expenditures.
Does that mean I shouldn’t pursue such an investment? A vacation rental can help you earn passive income. However, it is a good idea to seek the advice of a professional brokerage firm. They will help you make informed decisions about the cost of such an investment.
What if I’m Interested in Self Employed Mortgages?
Many people are interested in self-employed mortgages but fear they’ll be denied because of their financial security. This should not be a problem. If you are self-employed for at most two years, or have at least 25% ownership in a business that generates a steady income, you may qualify for self-employed mortgages.
You can get stable income from many sources. Some lenders will even accept unemployment income. However, the success of your application for a regular mortgage depends on your credit score and your history.
Self-employed applicants face many difficulties in obtaining proof of income that is necessary to approve their application. It may be a reason for hiring professional mortgage brokers who can assist you with your application and give you options for financial security for your family.
A self employed mortgage should be no more complicated than traditional mortgages. Ask for assistance from a specialist broker.
How can holiday let mortgages help you? Entrepreneurship Life first published this post.